Wednesday, March 23, 2011

Transmile, Chapter 3

I picked Transmile as a case study because I personally have a small loss when invested in this counter, about RM 1,000 -- not a big deal. I was lucky to escape this near death incident but this RM 1,000 lesson has a big impact on the way I invest from that day onwards. In this chapter 3, let me first extract a few pages from 2006 Annual Report on the special investigation results(Click on the images to read the details).

You see from the audit adjustments that they have falsified at least 300 mln plus of revenue which were never existed.

We all also can see that they have siphoned out at least about HALF-A-BILLION Ringgit over 3 years for buying equipments that never existed.

It was kind of difficult to detect a problem like this by analyzing their cash flow statement, account receivable trend, or yield on cash, etc. What happened in this case was the business model was truly a great model. It was a cash generative business but it was too bad that the management siphoned out the money.

There is a very important aspect we all should look at when we analyze company, that is corporate structure and related company transactions.

Why such a simple business need such a complex structure? In this case, the management was using TAS and CenWorldwide as a medium to create all the false invoices and others.

From that day onwards, whenever I see a company with corporate structure like Octopus, I tend to raise my level of paranoia and I hope you will do the same.

1 comment:

yauwenchin said...

and no one was caught, another high profile case, no one should know the truth, the culprit got away, again.